W&M high on premium brands

When Diageo recently ended its bulk scotch sourcing contract from Whyte & Mackay, time was running out for Vijay Mallya fast.

United Spirits, the flagship spirits company of Mallya-led UB Group, had acquired W&M for close to Rs 5,000 crore in 2007 and the supply to Diageo accounted for nearly 30 per cent of its bulk supply contract. The contract came to an end during mid-2010, but Mallya has not lost much time in making W&M a more focused branded player. In the process, it deliberately downplayed bulk supplies.

USL is also planning to introduce new W&M brands in the premium segment, increase presence in the scotch segment across various price points and newer geographies. “We intend to leverage Whyte & Mackay expertise and increase their brand presence in fast emerging global markets,” Mallya says.

W&M’s average branded business realisation for relevant vintage is 4 to 4.5 times that of bulk business.USL has also increased malt capacity to support branded business requirements by reopening the Tamnavulin malt distillery.

According to USL, the Single Malt whisky segment has grown significantly higher than blended scotch whisky with a volume CAGR of about 6 per cent while there has been an increased preference for higher vintage scotch and single malt whiskies. W&M has a portfolio of heritage brands across the spectrum with legendary brands such as Dalmore, Isle of Jura in Single Malt and Whyte & Mackay, John Barr, Claymore in the Blended Scotch category.

The strategic plan is to enhance the share of the premium end of scotch whisky through single malts and high end blended scotch rare editions. The target is to grow 25 per cent in single malts over the next three years through Dalmore and Jura while parallelly leverage vintage scotch inventory to introduce high-end rare editions.

“We have built a more profitable and focused branded business. The contribution of branded business has improved from 44 per cent to 50 per cent of sales. This increased focus has meant that 80 per cent of contribution now comes from 17 brands compared to 31 earlier,” Mallya says.

USL has also strengthened the route to market W&M brands by completing the transition to own a set-up in the UK and by revamping import & distribution in the US. “We have also established new importer / distributor tie ups in China, Taiwan, South Korea, West Asia and South Africa, while enhancing coverage of Duty Free channel from 5 to 30 key locations,” Mallya says.

These steps along with increased distribution of scotch brands in India by 40 per cent has helped W&M’s bottled business to grow at a CAGR of 20 per cent over 2006-07 to 2009-10, with sustained growth in large emerging markets of China, India, Russia, Brazil, and South Korea.

Even as USL is leveraging W&M across key emerging markets, it is looking to reduce the UK share of branded business from 45 per cent to less than 30 per cent over the next three years. “China and Russia are the key focus markets where we are looking at aggressive growth,” Mallya says.

Detailing plans for a major foray of W&M brands into India, Mallya says that the Indian scotch market has witnessed a 20 per cent growth over the last four-five years. “However, a strong latent demand still exists for Scotch whisky in India. A major hurdle is the current entry level retail price of $20 per bottle, which is high due to a 150 per cent import levy,” he says. Despite this, USL ended 2009-10 with about 150,000 cases sale at a share of about 15 per cent, up from around 10 per cent 2 years back.

“Our target is to reach 20 per cent market share with 275,000 case sales at a 35 per cent CAGR over next two years. We are increasing scotch distribution to 25,000 retail outlets from current 15,000,” Mallya says.